Sakakibara: Yen to Hit Record Despite Intervention

Japan’s intervention in currency markets won’t stop the yen from reaching a record in 2010, and further attempts to stem gains against the dollar risk criticism from the U.S., said Eisuke Sakakibara, formerly Japan’s top currency official.

The yen appreciated to 82.88 to the dollar, the strongest since May 1995, on Sept. 15 before the Bank of Japan intervened to weaken the currency for the first time in six years.

“The latest intervention won’t change the market trend,” Sakakibara said in an interview in Tokyo today. The currency’s climb to a record is “just a matter of time.”

Global risk aversion this year has driven gains in the yen, which tends to strengthen during economic turmoil as Japan’s trade surplus makes it less reliant on foreign capital. A stronger domestic currency hurts the competitiveness of Japanese exporters.

The yen traded at 85.47 per dollar as of 11:14 a.m. in Tokyo. It reached a postwar record of 79.75 in April 1995.

The yen plunged more than 3 percent on the day the Bank of Japan unilaterally intervened. The move came as the U.S. tries to persuade China to let its currency trade more freely, saying that the yuan’s below-market value is hurting the U.S. economy.

“Of course there’s a short-term effect,” Sakakibara said, referring to Japan’s efforts to weaken its currency alone. “For it to really work over the long-term, the U.S. has to be involved. The U.S. has the yuan revaluation problem, so it’s not happy about Japan’s intervention.”

‘Deeply Disturbing’

U.S. House Ways and Means Committee Chairman Sander Levin called Japan’s intervention “deeply disturbing,” and Senate Banking Committee Chairman Christopher Dodd said it broke international accords.

Deposits at the Bank of Japan climbed by 2 trillion yen ($23.4 billion) to 17.1 trillion yen, the central bank said on Sept 17. The figures suggest that Japan sold up to 1.8 trillion yen on Sept. 15, according to Junko Nishioka, chief at RBS Securities Japan Ltd. in Tokyo. Central banks conduct bill auctions to drain excess currency stemming from foreign purchases, a process called sterilization.

Chief Cabinet Secretary Yoshito Sengoku told reporters on Sept. 15 the finance ministry “seems to think” 82 yen per dollar to be the line of defense. A day earlier, Prime Minister Naoto Kan won re-election as head of the ruling party, beating a challenger who had insisted intervention was necessary.

‘Gentle Appreciation’

Intervention in currency markets should be avoided as a rule, and a strong currency can be beneficial to the economy, Sakakibara said.

“A gentle appreciation of the yen is in the country’s interest,” said Sakakibara, who is a professor at Aoyama Gakuin University in Tokyo. “That’s the stance Japan should take.”

Japan hadn’t intervened in the currency market since March 2004, when the yen traded at about 109 per dollar. The Bank of Japan, acting on behest of the Ministry of Finance, sold 14.8 trillion yen in the first three months of 2004 following record sales of 20.4 trillion yen in 2003.

The action failed to keep the currency from rising to 102.63 to the dollar by the end of that year.

Sakakibara became known as “Mr. Yen” during his 1997-1999 tenure at the Ministry of Finance for his efforts to influence the yen rate through verbal and actual intervention in the currency markets.

Japan s intervention in currency markets won t stop the yen from reaching a record in 2010, and further attempts to stem gains against the dollar risk criticism from the U.S., said Eisuke Sakakibara, formerly Japan s top currency official.
The yen appreciated to 82.88 to...